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Nightly Business Report

News/Business. (2009) Michael Mandel, BusinessWeek. New. (CC) (Stereo)

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00:30:00

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mpeg2video

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ac3

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704

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480

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America 16, Ken Lewis 6, S&p 3, Us 3, Sheehy 2, Stephanie Dhue 2, Darren Gersh 2, Conaway 2, Sec 2, Scott Gurvey 2, Mike Mandel 2, Paul Kangas 2, Rochdale 2, Washington 2, Richard Bove 2, Merrill Lynch 2, Media Access Group 1, Dudack 1, Wgbh 1, Susie Gharib 1,
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  PBS    Nightly Business Report    News/Business.  (2009) Michael  
   Mandel, BusinessWeek. New. (CC) (Stereo)  

    August 3, 2009
    7:00 - 7:30pm EDT  

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captioning sponsored by wpbt >> paul: two big developments for bank of america and embattled c.e.o. ken lewis. the bank settles s.e.c. charges it misled investors about bonuses for merrill lynch execs. and b-o-a hires one of the best- known women on wall street shaking up its top management. we get insight on both moves from veteran banking analyst dick bove. >> susie: cash for clunkers drives a rebound in auto sales giving ford its first positive sales growth in over a year. but the program's future and funding are still up in the air.
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>> paul: then the markets start the month on a tear with the s&p 500 pushing above one-thousand for the first time since last fall. how long will the rally last? some answers, coming up. >> susie: then, a problem at apple's core. google c.e.o. eric schmidt is stepping down from apple's board of directors. we'll tell you why. >> paul: i'm paul kangas. >> susie: and i'm susie gharib. this is "nightly business report" for monday, august 3. "nightly business report" is made possible by:
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this program was made possible by contributions to your pbs station from viewers like you. thank you. >> susie: good evening, everyone. a management shake-up and a $33- million s.e.c. settlement at bank of america today. the banking giant paid the fine to settle a complaint it misled investors about billions of dollars in bonuses paid to top executives at merrill lynch after b-o-a bought the brokerage. the bank also shuffled its senior managers hiring former citigroup executive sallie krawcheck to run b-o-a's global wealth management unit. that puts kracheck firmly in the
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race to succeed c.e.o. ken lewis. we begin our coverage with darren gersh and more on that s.e.c. fine: >> reporter: if a statement could breath a sigh of relief, you'd have heard it from bank of america today. the company did not admit or deny the securities and exchange commission's charges, but a bank spokesman called the settlement a constructive conclusion. legal experts said it was worth noting the s.e.c. did not charge bank of america with fraud. finance professor james angel says a fraud charge would have triggered much stiffer penalties. >> the fact that it was misleading and that they are not arresting people for securities fraud shows that they may really think it was more of a paperwork error than an intentional scam on the public. >> reporter: regulators charge the documents bank of america sent to investors explaining its deal to buy merrill lynch were false and misleading. that's because bank of america said no bonuses would be paid at
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merrill without b of a's approval. bank of america did not disclose $5.8 billion in bonuses had, in fact, already been approved for payment to merrill executives. members of congress have spent many hours looking into charges bank regulators pushed bank of america ceo ken lewis into a shotgun marriage with a faltering merrill lynch. congressional critic darrell issa says this settlement wraps up just one part of that controversy. >> it doesn't reduce the fact that this was a sloppy job, done quickly, at the bequest, to a great extent of the government that was more interested by the statements of bernanke and paulson. they were more interested in a global market meltdown than they were the accuracy of this merger. >> reporter: with the fine today, angel says the s.e.c. is now sending a new message. >> it sends a strong signal to dealmakers everywhere, you really need to disclose everything. >> reporter: and it serves as a
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reminder that what angel calls the "bonus culture" is still as controversial as it has ever been. darren gersh, "nightly business report", washington. >> susie: joining us now with more analysis, richard bove, veteran banking analyst at rochdale securities. >> suzanne: let's get right to the $3 million settle -- $33 settle., should it have been more? >> i don't think it should have been more. i don't think the government should tell a company to do something then fine them after they do it. but $33 million is very small relative to the $5.8 billion in bonuses that were paid. i'd say just a slap on the wrist. it wasn't a meaningful statement by the government. >> shareholders have been very angry about this whole b of a/merrill lynch merger, should they be satisfied been this news? >> you can't be satisfied if the sec fines your company. but i think they have to feel some degree of relief that there ll be no further activity related to this situation.
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that it will not hurt their stock price, will not hurt their company. they can move on and forget this for the moment. >> do you think new york attorney general will move on, they have been grilling bank of america overall of these developments for months now. is it over? is this chapter over? >> i think it is. i think that congress moves on to much bigger issues considering the financial industry. i think that all of these proposals that have been sent to congress by the president as well as the issues that have been introduced in to congress as a result of sheila behr, the fdic desires. all of these things have to be discussed. once the healthcare issue gets out of the way this is going to be a major debate. >> susie: do you think that this settlement will set a precedent for other financial terms, might we see that the sec will slap fines on other financial firms or maybe even a firm like aig? >> i think there's a strong
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demands on the part of the public. the congress feels it, the regulators feel it to do something about the excesses that have occurred in the financial industry. therefore, i would not be surprised at all if we saw additional fines, but if they're going to be like this one, they're simply going to be, if you will, eye wash, not going to be meaningful. >> susie: what does all of this mean for investors who own bank of america stock? is it trading around $15. it was up around $15. is it -- does it make stones put new money in this, buy or sell? >> very definitely believe they should be buying it and buying it not because of settlement or the controversy in congress. because i think that the loan losses at bank of america will come down over the next couple of years allowing earnings to surge. it's that earning surge that the investor should focus on that's what they should buy in to. i would be buying bank of america stock tomorrow morning. >> susie: let's talk about the management changes that were
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announced today. is ken lewis on his way out or did he survive all of this? >> i think ken lewis is very strongly in control of bank of america. i don't think there's any likelihood whatsoever that anyone is going to push him aside. i know that it's discussed often by politicians, by the press, but i doubt that there is going to be any change there. i think mr. moynihan moves in to top position as next possible successor of mr. lewis, simply because the guy who runs the retail bank generally takes over the head of bank ever america -- >> susie: are you saying that sally, the new executive who was just hired today formerly from citigroup will -- is not being groomed to take over from ken lewis? >> i don't think there's any likelihood whatsoever of her taking over. but i do think that this will harm her if this type of conversation continues. in other words, if the press decides that they are going to set up sally the way they did at citigroup, it's only going to hurt her and only going to harm her.
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she's a very effective executive, she's an extraordinarily bright and capable woman and she should be allowed to just do her job at bank of america, or merrill lynch in this case, without the obstruction of being thought of as an ex-sec saysor to ken lewis which she is not. >> susie: very interesting. before we go, any disclosures to make about bank of america? >> i don't do business with them. >> susie: thank you so much for coming on the program as always. >> thank you. >> susie: my guest tonight: richard bove, veteran banking analyst at rochdale securities. >> paul: wall street began august continuing july's winning ways thanks to more reports suggesting a recovering economy. june construction spending rose 0.3% when a drop was expected while an easing of activity in the manufacturing sector at a slower pace in july than in june. these factors had the dow up 102 points at mid-session with the nasdaq up 25 points. the ability of several major stock indices to push above
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major resistance levels lifted the market to the day's best level at the final bell. >> susie: the monthly sales numbers are in and ford motor is the big winner in the "cash for clunkers" bonanza.
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thanks to the government rebate program sales at ford surged 2.4% last month. that's ford's first year-over- year gain in almost two years. at general motors, sales continued to slide: down 19% but g.m. said cash for clunkers is helping to stabilize the industry. chrysler sales fell 9% and toyota's were down over 11%. but as stephanie dhue reports without additional funding cash for clunkers could stop on a dime. >> reporter: hearing news the cash for clunkers program could end, heather and matt cronin drove into the sheehy dealership today. they're looking to take advantage of the $4,500 for their old jeep. >> it's a substantial amount, it makes it worth us doing it now rather than waiting. >> reporter: cash for clunkers drove more than 500 sales at dealer vince sheehy's 14 outlets. that pick-up in business may lead to new hires, after lay- off's last year. >> when this program kicked in, we're very short-staffed, we're going to have people working through the night tonight just
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to process deals under the program, but we're hopeful that we can probably add back maybe 10% back to our workforce. >> reporter: while there is some concern the cash for clunkers program could slow future sales, the hope is that the new-found momentum will continue long after the program is gone. sheehy says those buyers wouldn't have come without the incentives. >> if you look at the clunkers, it's not our typical trade-in, so yeah, probably, maybe a third of those were deals that would have been made later on this year, probably two thirds were from people who were not intending to buy a new car, maybe at some point down the road would have bought a used car. >> reporter: the future of cash for clunkers is in doubt. the senate has yet to take up the measure and several lawmakers oppose increasing funding. the transportation department eased the restrictions, so dealers no longer have to trash vehicles before the paperwork can be processed. sheehy is worried about how the program will end. >> we have $1.8 million in
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receivables from the federal government and the messaging coming out of the white house and the department of transportation have been very mixed, >> reporter: the senate may vote on the issue wednesday or thursday. >> reporter: in the meantime, dealers are still offering cash for clunkers. but customers have to agree to return the car or pay the difference if the government does pay have the money. stephanie dhue, "nightly business report", washington. beginning of november. as we reported, 1,000 on the s&p
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500. the broad market index has improved by more than 48%. from its mid-march. so, women the bull run continue or is the end in sight? scott gurvey gets some answers from wall street: >> reporter: it was the best july in 20 years for wall street with the standard and poor's five hundred gaining 7.5%. and august is off to a strong start. with the index topping 1,000 for the first time since november. the rally has bears and short sellers running for cover. but market watcher gail dudack says it'll be difficult to keep up the momentum. >> i think getting the market up to the one thousand level on the s&p is in many ways the easy part. i think the harder part will be getting the market beyond, substantially beyond one thousand. because to do that you really have to have a solid feel for what two thousand and ten's earnings picture will be like. >> reporter: second quarter earnings surprises have been mostly positive.
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and analysts have been raising projections for the quarters ahead. milton ezrati of lord abbett expects earnings to be good. >> we will see stronger numbers for two reasons. one is because the economy has turned but also the comparisons, keep in mind the numbers we see are always against the comparable quarter in the previous year. things were falling apart this time last year so the comparisons are going to be much easier. >> reporter: but will there be jobs? most economists agree the stock market rally needs to be confirmed by economic growth. a healthy economy requires consumer spending and consumers won't spend unless they feel they have job security. dudack says with all the government involvement in the economy, it is not clear what will happen when the uncle sam steps back. >> my big concern is what happens when some of this stimulus subsides. what's gonna happen to the job market in the fourth quarter this year and the first quarter of next year. so where i've been very optimistic up until now the market has gotten to where i
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think is fair but to get beyond fair i want to feel better about the first quarter two thousand ten and i think this is still very fuzzy. >> reporter: the employment report for july, due out on friday, is seen as critical to market psychology going forward. jobs losses are expected. but experts say if the losses are fewer than three hundred thousand, the market will take it as a bullish sign. scott gurvey, "nightly business report", new york. >> paul: now, let's take a look at some stocks in the news tonight.
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and those are the stocks in the news tonight, susie. >> susie: tomorrow, with lender cit still on life support, we look at commercial lending and when credit could start flowing.
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>> susie: there's a new leader at bailed out insurer aig the company's fifth in four years. robert benmosche the former c.e.o. of met-life, will replace edward liddy. liddy held the job for less than a year. topping the new c.e.o.'s agenda: selling the company's assets, paying back government aid and deciding whether to continue paying controversial bonuses. benmosche expected to start his new job monday. >> paul: federal regulators want the former head of k-mart to pay $22 million for misleading investors. the s.e.c. accused charles conaway of intentionally lying to analysts and concealing information from k-mart's directors. a jury found him liable in june. conaway's lawyer says his clients' actions were in the best interest of k-mart's shareholders. a hearing is set for september 16.
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>> susie: tonight's commentator says americans need a lesson in economics 101. he's mike mandel chief economist at "businessweek." >> economic literacy is a phrase that we don't hear much. but it's going to become more important in the days ahead. we face a growing mountain of critical economic issues: health care, taxes, budget deficits,
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the financial crisis. unemployment, trade, protectionism, minimum wage, antitrust, innovation, growth, retirement, and education. the list goes on and on. what's more, there's no single right answer to any of these. i can line up reputable economists on both sides of almost any economic topic- sometimes three or four sides. as voters and citizens, americans seem to have a strong desire to understand these issues. but there's a big gap in economic literacy. journalistic pieces on the economy are accessible and easy to read, but they rarely provide the basic economic theory and principles. by contrast, most economic textbooks give the dry theory without much connection to current events. now, there are plenty of groups who deal with economic literacy for school children, like the national council on economic education. and college students, of course, get to take basic economics courses. but for adults who care about the economic choices that we make as a society, the options are much sparser.
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i think we need to start figuring out a way to get americans the information and understanding about the economy that they need to make informed decisions. that could be in print, online, or through videos. but we have to make economic literacy one of our biggest priorities. i'm mike mandel. that's "nightly business report" for monday, august 3. we want to remind you this is the time of year your public television station seeks your support. >> paul: support that makes programs like nightly business report possible. >> susie: thanks for joining us. and don't forget to support your public television station. i'm susie gharib. goodnight, everyone. you too, paul >> paul: goodnight susie. i'm paul kangas wishing all of you the best of good buys. "nightly business report" is made possible by:
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this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org
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